Last weekend’s global cyber attack reminded us all of the new threats and challenges brought by technology. To help our clients deal with them, BMS has a specialist cyber-risk team that provides effective advice before, during, and after any cyber incident. It is just one area where our insight and collaborative approach enable us to add value through risk management and education.

Hot on the heels of hiring Andrew Godden as our new CEO of BMS Australia, I’ll be joining our team in Sydney on Monday 22 May and visiting clients and markets throughout the week. The investment we are making in BMS Australia and Asia Pacific, based around the entrepreneurial culture we have created inside BMS, increases our reach amongst clients because it has helped us to attract the highest calibre of market-leading individuals to the team.

In Australia, our focus remains absolutely on our clients, particularly given the level of growth BMS Australia has recently experienced. We remain committed to our current wholesale strategy, supporting retail brokers in certain niche classes of business such as mining, sports and healthcare associations and general liability. We launched our Australian operation with the opening of our Sydney office in 2014 and the Melbourne office in 2016. To have been able to attract an industry leader of the calibre of Andrew Godden is testament to our team’s work in the region and to our ambitions.

Across Australia, we see many opportunities in the corporate arena to offer existing and new clients access to our broking services and industry-leading technology in an ever more complex business environment.

We believe in specialisation. Our Melbourne affinity business focuses on providing targeted advice and service to specialist interest groups. For example, to date, we have more than 500,000 healthcare professionals as clients through their associations. BMS is a vital link in assisting those associations to grow their membership.

BMS is an employee-owned business, committed to its independence for the long-term. Whilst the insurance market faces challenging conditions world-wide, our investment in new technology is creating opportunities.

The quality of our people is the reason for our success – and we are determined to keep hiring the best people to make certain our clients are getting the best possible advice and service.

Seasonal hurricane forecasts, with varying lead times, have been produced in the Atlantic basin since 1984 by the late Dr. Gray from Colorado State University (CSU). Partly as a result of the early success of those forecasts, seasonal named storm forecasts are now a dime a dozen with many different research and operational groups making seasonal hurricane forecasts for tropical basins around the world. Although there are some very brilliant minds making these forecasts, some might argue there has been little skill improvement over the last several years. The insurance industry is accustomed to using climatology to understand the risk of a U.S. landfalling hurricane. This climatology also suggests, on average, the more active the overall Atlantic basin hurricane season is, the greater the probability of U.S. hurricane landfall which can be useful guidance to the insurance industry heading into the hurricane season. However, when it comes to seasonal landfall forecasts, really no skill has been demonstrated; this is ultimately what matters for the insurance industry. In fact, there isn’t a forecast group that has skillfully predicted the current drought in major hurricane strikes over the last 11 years.

CSU provides easy access to historical forecasts which allows for simple validation of there seasonal forecasts. In a simple analysis, the CSU forecast has done fairly well with their April predictions when compared to using historic climatology (6.5 hurricanes per year) . Fourteen CSU forecasts since 1995 have come within three hurricanes of the seasonal hurricane total in the Atlantic Basin. On seven occasions, they have only missed the cumulative number by one. They hit the mark in 2008. Of course, CSU have posted a few wayward forecasts as well: 2005 (undershot the total by eight hurricanes) and 2012 (fell short by six hurricanes).

Regarding the major hurricane forecasts, CSU has made seven forecasts that failed to fall within two storms of the final tally. This should not obscure the fact that they’ve also posted four perfect forecasts of major hurricane occurrence and 13 others that approximated the seasonal total within one storm.
It is very easy for one to sit back and grade objective season hurricane forecasts like CSU, and there is no doubt a lot of work goes into the refinement of these forecasts each year. I am a firm believer that seasonal forecasts and even landfall forecasts will improve over time. Currently, many of these seasonal forecasts are statistical schemes which will inherently fail some years. There is some promise that a hybrid of statistical and dynamical forecast could be the future of seasonal hurricane forecasting.

As mentioned, the real value to the insurance industry is in getting an accurate picture of potential landfalling storm activity. CSU issues probabilities for landfalling hurricanes across various regions of the U.S. This year, they are forecasting a 75% probability of a hurricane landfall. The probability of landfall for any one location along the coast is very low and reflects the fact that, in any one season, most U.S. coastal areas will not feel the effects of a hurricane no matter how active the individual season is. And, given the variation of exposure along the coast, providing accurate estimated insured loss ahead of season is very difficult if not impossible.
However, given the current state of the science of seasonal forecasting it is possible to provide guidance to which area of the coastline will see a higher than normal probability of landfall. This year, landfall forecasts may prove to be one of the more challenging years. This is due to the large amount of uncertainty of many of the climate forcers used to predict Atlantic named storm activity. One of the most common climate forcers used is El Niño Southern Oscillation (ENSO) and, this year, many forecasts are uncertain if an El Niño event will take hold during the summer, which historically suppresses hurricane activity. CSU thinks an El Niño will be weak or moderate by the peak of the Atlantic hurricane season based on their April forecast. However, as mentioned a few weeks ago, spring El Niño forecasts can be notoriously misleading, and result in difficult forecasts. (This phenomenon is so familiar that it has its own name – the “spring predictability barrier”.) Over the last few months many of the monthly climate models have backed off of the idea of a strong El Niño during the peak of the Atlantic hurricane season and now have a weak to neutral ENSO condition. If the El Niño is weak, it could result in increased landfall chances, and El Niño historically has little to do with any activity in the Western Caribbean / Gulf of Mexico and any activity in this region increases the chances of U.S. landfall.

Official Climate Prediction Center ENSO probability forecast for Mid-April (Top) and Early May (Bottom) Showing in just a half of month the probability of a El Niño during the hurricane season (Gray Box) went form 70% to below 50%. There is an increasing signal that ENSO will be neutral during the hurricane seasons.

The other challenge this year is that earlier this spring, water in the far North Atlantic and water off the coast of Africa had a relatively cold signal which is potentially indicative of a negative phase of the Atlantic Multi-Decadal Oscillation (AMO). However, over the last month or so, the Atlantic water has warmed substantially. This continues the debate as to whether the AMO has switched to a negative phase. The U.S. government suggests the Atlantic is still in a positive state, whereas the CSU data suggests the AMO has trended negatively over the past few years. If water continues to warm over the main development region, like it has over the last month, it could allow more storm formation in the heart of the hurricane season.

NOAA SST anomaly (degree C) for 4/10 (left) and 5/11 (right) showing a warming of SST off the west coast of Africa off the East Coast of the US. The cold SST in the North Atlantic have expanded and SST after months of above normal in the Gulf Of Mexico have recently turned colder than normal which should be short lived.

Another factor that has had a large influence on named storm activity over the last few years has been the Saharan Air Layer (SAL). Named storms interact with the SAL in several ways. Some named storms get embedded in the SAL their entire life-cycle and often struggle to intensify beyond strong tropical storm strength. Other named storms can be overrun by the faster moving SAL and are quickly weakened. The SAL in general can hamper convection, making it hard for named storms to develop. This year could be similar to the last couple of years which would hamper development of named storm activity in the main development region but, as tropical waves get closer to the U.S. and Caribbean, the SAL decreases, and conditions become more favorable for development outside of the SAL.

This satellite image from NASA taken earlier shows a large amount of (SAL) dust currently affecting West Africa & Cape Verde with wake vortices pic.twitter.com/JqMtY2TVCJ

Not to forget about Hawaii, which is also a target for named storm activity and, like the U.S. mainland, has gone a long time without a major hurricane impact. This year, the insurance industry should also keep an eye on this 50th state as, just like the warm sea surface temperature (SST) off the East Coast of the U.S., the SSTs are above normal near Hawaii, and any tropical activity that might come close to the islands could be enhanced by these warmer than normal SSTs.

Summary
Forecasting of Atlantic named storm activity is not easy, and CSU has demonstrated variability in skill year over year, with no real improvement in the April seasonal forecasts over the last several years, but overall there is skill improvement over using basic climatology. Although some forecasts are currently calling for below normal activity in the Atlantic basin, climate forcers are pointing toward the ideas that these forecasts will be adjusted upward as we approach June 1 to a more active or normal season. The major climate forcers suggest there could be less development in the main development region of the Atlantic but, as tropical waves move closer to the U.S., they could have a better chance at developing, due to lack of wind shear and lower SAL environment. SSTs near the U.S. coastline are also expected to be warmer than normal which would add fuel to any disturbances that develop. Therefore, parts of the U.S. coastline have a higher probability of a landfalling named storm this season, with the Mid-Atlantic and Northeast seeing the highest chance.Resources:
Barcelona Supercomputing Center has a nice summary of the various Atlantic Hurricane Forecastshttp://www.bsc.es/ESS/seasonalhurricanepredictions/
NOAA Climatology Products – Avg Start Dates, Return Periods, Develop Origin by Date, Strike Densityhttp://www.nhc.noaa.gov/climo/
CSU U.S. Landfalling Hurricane Probability Projecthttp://www.e-transit.org/hurricane/welcome.html

BMS Group Limited (“BMS”), the independent specialist insurance and reinsurance broker, today announces the appointment of Andrew Godden as CEO of Australia. He will report directly to Nick Cook, CEO of BMS and be based in Sydney.

Andrew has established an outstanding reputation during his 30+ years in the insurance industry, based on his strong entrepreneurial approach to building insurance businesses. Most notably in 2003 he co-founded Specialist Broking Associates. Since its 2010 purchase by Arthur J. Gallagher, Mr Godden has been CEO of Australia for the combined business.

Andrew’s appointment will further enhance the significant reach BMS has been developing in Australia and across the Asia Pacific region, which is based on its commitment to offering its clients an individually focused level of service.

Nick Cook, CEO of BMS, commented: “BMS has been building its reputation in Australia and the wider Asia Pacific and I’m delighted that the entrepreneurial culture we have created has allowed us to attract an individual of Andrew Godden’s calibre. Andrew shares our belief in an employee-owned business with an absolute focus on high quality customer service, which will be invaluable as we expand our reach right across the region.”
Andrew’s appointment will take effect upon the expiration of his contractual obligations to Arthur J. Gallagher.

The Onslaught of Severe Weather
Last week I posted some general ideas of what to expect over the next few months and briefly touched on U.S. severe weather. In this update I will provide a bit more detail on 2017 severe weather and what to expect over the next few months.
As mentioned in my last blog, this year is off to a record pace in terms of severe weather reports and U.S. insured loss. In fact, if you think a major severe weather event is occurring about every week so far in 2017, you’re likely correct as there have been only four severe weather free weeks so far in 2017 according to PCS wind and thunderstorm event designations.

Highlighted dates in 2017 in which PCS has a wind thunderstorm designations

Historically, in terms of number of PCS wind thunderstorm events, the activity has been unprecedented with 19 events so far, which is 271% above the average number of events that have occurred since 2000.

Number of PCS event designations by year as of May 1

January – April Wind and Thunderstorm PCS losses in billions adjusted for CPI by year.

However, in terms of insured loss it is difficult to estimate how the recent PCS events might develop. Given the wide scope of impact, it would be safe to say at least another billion dollars (or two) could still be expected to develop from existing PCS designated events that have occurred at the end of April. If this development occurs, insured loss through the end of April would be at a historically high level. However, it would be far lower than the costly severe storm year of 2011, where the loss was driven by the deadly April tornadoes in Alabama and the Joplin, Missouri tornado in May. This highlights the remarkable luck that has occurred with tornado related insured loss over the last several years and especially this year since reports of tornadoes are running above normal for the first time since 2012.

Since the U.S. has not experienced a major marquee tornado loss this year, most of the insured loss continues to be related to hail or localized wind damage with smaller tornado losses mixed in such as the East New Orleans tornado on February 7th of this year. Below is a break down how insured losses have compared to 2016 by state thru May 1st, keeping in mind further development of 2017 losses is expected. As of right now Texas, which last year saw 47% of the total reported U.S. insured loss, is reporting a lower level of loss as of May 1 compared to last year at this time.

Insured PCS Loss Difference (%) from 2016

Possible Cause of Severe Weather
The main stream media continue to put focus on El Niño–Southern Oscillation (ENSO) and its possible impacts on this year’s severe weather, but severe weather cannot be tied to just one atmosphere climate forcer. As mentioned in my previous post, several bits of research have been done around this relationship of Gulf of Mexico Sea Surface Temperatures (SST) and severe weather Convective Available Potential Energy (CAPE). Currently, the SST, are at record high levels, which appears to be helping provide extra fuel for any storm system that traverses across the U.S.

The Gulf of Mexico has recorded 324 consecutive days of above average temperatures — eclipses previous record by a whopping 134 (!!) days 🔥 pic.twitter.com/5qEsM6598P

However, another hypothesis is the relationship the Rocky Mountains and Northern Plains snowpack has on severe weather and tornado occurrence. There is little research around this connection, but a quick crude analysis shows there is possibly a connection here suggesting in years when May snowpack is below normal in the Colorado basin U.S. tornado count in May is also below normal. This is not the case this year with near record snow pack across the Rocky Mountain; however, the correlation between above average snowpack years and tornadoes is not as clean. Combining this theory with warmer than normal Gulf of Mexico SSTs creating warmer, moister air and the extensive spring snowpack in the Rocky Mountains provides an interesting hypothesis that would be a great master thesis for some young inspiring meteorologist.

Forecasted Severe Weather

As shown with the severe weather losses and number of events the first few months have been active, but the first few months of the year historically make up only 19.5% of the severe weather activity on average as recorded by NOAA Local Storm Reports (Tornado, Hail, Wind). An active January thru April can quickly be superseded by a quiet May, June, & July. In attempting to understand if early activity will lead to an overall above active year, I used a trailing 17 year average to find above and below average periods. In this sample approach, over the last 17 years, 7 years were above average in the January-April period. Of the years that had an above average January – April reports of severe weather, only one year (2016) went on to have above average numbers for the remainder of the year, the remainder of those years ended quieter then normal.

Annual PCS January – April loss development as a percent of yearly total loss.

In terms of insured loss as of May 1, historically the U.S. insured loss is developed at 42% and we know there will be further development of 2017 losses that have occurred at the end of April. Regionally, it would appear severe weather will continue to be a common occurrence across the Southern Gulf States into the Carolinas into June. More typical periods of warmth across the Northern Plains will trigger severe weather into the summer. However, the stormy periods are not expected to last long like the current persistence pattern the south has seen so far this year.

Note on Wildfire Risk
Florida will continue to see a higher risk for wildfire, but after June the risk could shift to Western states. Despite significant rain and mountain snow across California early this year, wildfires will still pose a threat this summer. Significant precipitation has led to abundant vegetation which can serve as fuel for fires. Early in the season, heat may be inconsistent across California, but temperatures are predicted to rise in July, which will likely dry out this new vegetation and increasing the chances for fires.

BMS Group Limited (“BMS”), the independent specialist insurance and reinsurance broker, today announces the appointment of John Hoare as Managing Director of BMS Harris & Dixon Marine, BMS’s specialty marine division with immediate effect. John succeeds current Managing Director Tony Pryce, who will remain Chairman of the business. John and Tony will work closely together on developing the expanding portfolio of BMS Harris & Dixon Marine.

John brings 32 years of experience in the marine insurance industry. He most recently served as International Marine Director at H. W. Wood Limited, having joined H. W. Wood from Heath Lambert. He began his career in the insurance industry at Sedgwick in 1985.

Tony said: “John’s appointment comes at a vital moment for BMS Harris & Dixon Marine. We have been steadily growing our book of business, and John will play a crucial role in the continued build-out of our capabilities. It has been a privilege to lead the BMS Harris & Dixon Marine division for almost thirty years, and it is now time for an orderly and managed transition to a new generation of leadership. John embodies the values of client service we hold so dear at BMS, and I therefore look forward to working with him to ensure the continued success of the business.”
John said: “BMS Harris & Dixon Marine has an unparalleled reputation in the marine market and has gone from strength to strength in recent years since its integration into the BMS Group. With ambitious plans and an expanding portfolio, BMS Harris & Dixon Marine will be an absolute pleasure to lead. I am delighted to be joining BMS Harris & Dixon Marine and working with as experienced a figure as Tony.”